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The Present Stage of the Czech Transformation: After the Surgery, Before Full Recuperation

English Pages, 27. 9. 1996

Mr. Chairman, Ladies and Gentlemen,

I have been asked to say something about the present stage of the Czech tranformation. To put it briefly, I think I may use a simple analogy: after the surgery, before full recuperation. In all its simplicity, it reflects something very important.

In principle, I believe I can argue that the Czech Republic has returned - after almost seven years of its fundamental economic, political and social restructuring - to the world to which it belonged in the past. I can argue as well that we have been moving ahead in all fields, in all dimensions of human life.

Some results are tangible and measurable, some are not. Our country enjoys the third year of economic recovery with the growth rate of gross domestic product at present at about 5 per cent per annum. The inflation rate of around 9 per cent is one of the lowest among the Central and Eastern European countries. We have had almost seventy months of a stable exchange rate. The unemployment rate is around 3 per cent of the labor force. The state budget is balanced.

You cannot so easily indicate non-economic achievements but there is no doubt that the political and social changes have been enormous.

Behind us are forty years of totalitarian rule and its collapse, political, social and economic transformation, difficult process of macroeconomic stabilization, far-reaching price liberalization, the most radical and rapid privatization of state property ever attempted, foreign trade liberalization and a comprehensive shakeout of non-viable economic activities and institutions.

Throughout this whole process we had a consistent and straightforward vision of a society in which we wanted to live. The main foundations of such a society are well-known to all of us - these are liberty and a market economy based on private property, rule of law and limited government.

The Czech society accepted (and sort of „survived“) the negative „collapse effect“ of the dismantling of old institutions and activities. It absorbed - quickly and impatiently - the positive „liberalization effects“ connected with the opening of domestic and foreign markets. Both is over. The Czech society now sees growing disparities in income and property (not everyone is on the winning side) and waits for a massive „wealth-effect“ of a normally functioning capitalist society and economy. In addition to this „waiting“, some groups in society succeed in avoiding to pay their share of transformation costs. Those who cannot escape paying these inevitable costs blame the government for not defending them sufficiently - regardless of the existence of an apparent overall growth of personal incomes in real terms. As a result, the original (more or less unstructured and unconditional) support for the transformation and its organizers has been partly vanishing. This was reflected in the results of the recent Czech parliamentary elections. The space for brave government measures is, therefore, narrower than before.

Nearly four months ago, we held the third free elections after the fall of communism. Their outcome is perhaps more surprising than was originally expected, but I think that we can give them a positive interpretation:

a) The transformation policy, as it was initiated in 1989 and continued afterwards, was not refused in the Czech Republic. The pro-reform parties, which formed the government coalition until June 1996, received in these elections the same number of votes but less mandates than in the past elections because of the appearance of a strong opponent, the Social Democratic Party which grasped the votes of many only temporarily existing leftist parties which participated in previous elections. This result is different from the situation in most other - if not all - transforming countries, where the parties responsible for the transformation process were rejected by the voters. I assume that the present policy of the Czech Republic will not be changed and I am convinced that this has already been - and especially will be - proved in the following months.

b) The votes for the oposition were not the votes against the transformation process. They represented a certain degree of dissatisfaction with some partial aspects of the radical and sometimes painful recent changes and often also expressed rather unrealistic expectations regarding the speed of balancing the living standards with the countries of Western Europe or Northern America.

c) The results of the recent Czech Parliamentary elections were in a paradoxical way more influenced by the fact that we have already gone far in our transformation process, rather than that we have not gone far enough. The voter was making his decision in a standard political system, not in a revolution time as four or six years ago.

Returning to a more general discussion, we can make some non-trivial generalizations:

- the fundamental transformation of the whole society in a historically short period is a feasible task (which is a strong statement because six - seven years ago, when we started, many doubted such a possibility);

- there is no chance and therefore a futile endeavor to master-mind the whole transformation process and to guarantee optimal sequencing of individual transformation measures, because the systemic change is an evolutionary process, not an exercise in applied economics;

- there is - in reality - no choice between the so-called shock therapy and gradualism. Both these terms are very fuzzy concepts which should not be used in a serious argumentation;

- the crowding-out of non-viable economic activities (and the consequent economic decline) is an inevitable part of the transformation process;

- both the post-transformation recovery and the long-awaited catching-up process with free societies cannot be artifically accelerated or shifted in time;

- the radical transformation (in a unique, non-repeatable political atmosphere) should be used not only for dismantling old institutions of a command economy but for non-establishing the institutions of a paternalistic, over-regulated welfare state as well.

At this stage of our development, which we might perhaps call the post-transformation stage, we are fully aware of the challenges we face. These include first and foremost holding strongly the results we have achieved and maintaining the unique political, social and economic stability which is indispensable for further progress, and creating the conditions for dynamic and sustained economic growth, completing the liberalization and privatization processes and faster disinflation.

We consider the opening of our economy and society, and its integration into all kinds of international structures as a very important endeavor. In December 1995 our country became the first transition country that has joined the Organization for Economic Cooperation and Development (OECD). Membership into the European Union is an undisputed goal of almost the entire Czech political spectrum. The Czech Republic has been an associate member of the EU since February 1995 and at the end of January 1996 we submitted the official application for a full membership. This process is a legitimate outcome of the historical development of our country and a logical continuation of our transformation efforts. We want to play an active part in forming the new, free and prosperous Europe which would enhance freedom and welfare of all Europeans.

The twentieth century has been a century marked by the tragic experience with collectivist ideologies. Let us hope together that the end of this century will also mean the end of this detour in the history of humankind. The communist regime in our country is definitely over, but our experiences living through this gave us, surprisingly, also something positive. It made us extremely sensitive to all kinds of disturbances and violations of human freedom, which occur even in countries where democratic regimes have prevailed for decades or centuries. This perspective is something we are ready to share with other nations in the course of the eternal polemic on the roles of an individual and the state in a society, on the relationship between voluntary principle and obligation, and on the appropriate combination of intentions and spontaneity in social evolution.

Václav Klaus, New York, 27 September 1996

(Speech given by Prime Minister Václav Klaus at the Fund for American Studies lunch for corporate donors of the American Institute on Political and Economic Systems in Prague, September 27, 1996, New York)